Yasuda on Tokenization

The European Union’s Markets in Crypto-Assets (MiCA) Regulation came into full force on December 30, 2024, marking a significant milestone in crypto regulation. As of January 2025, Crypto Asset Service Providers (CASPs) must begin applying for licenses to operate within the EU. Several national authorities, including those in Latvia, Italy, Spain, and the Netherlands, have started accepting applications for MiCA licenses. The Dutch Authority for the Financial Markets (AFM) has already granted licenses to four CASPs, which are now listed in their online register.

The implementation of MiCA introduces a transitional period for existing providers, with varying durations across EU member states. For instance, Italy has confirmed a 6-month grandfathering period until June 30, 2025, for providers enrolled in the OAM register as of December 27, 2024. Spain allows registered providers to benefit from the transition period until December 30, 2025. The Netherlands requires crypto companies already registered with DNB to obtain a CASP license by June 30, 2025. This phased approach aims to ensure a smooth transition to the new regulatory framework while maintaining market stability.

Major financial institutions are increasingly exploring the use of tokenized assets for repos and derivative collateral, with several notable developments in recent years. J.P. Morgan has developed an intraday repo product using its Onyx digital business unit, known as the Tokenized Collateral Network (TCN), which facilitates the exchange of tokenized collateral against tokenized cash in the form of J.P. Morgan Coin. Broadridge Financial Solutions has created a Distributed Ledger Repo (DLR) platform that captures over $1 trillion in monthly volumes from the global repo market. In November 2024, Clearstream Banking S.A., Goldman Sachs, Eurex Repo, and HQLA X executed triparty intraday repo transactions using tokenized assets.

The use of tokenized assets, particularly money market funds (MMFs), as collateral for derivatives trading is gaining traction. In October 2023, BlackRock conducted a proof of concept with J.P. Morgan and Barclays, using J.P. Morgan’s platform to tokenize units of a money market fund and transfer them to Barclays as collateral for a bilateral derivatives trade. This approach could allow investors to pledge their MMF tokens directly to counterparties without needing to redeem them for cash first, potentially preventing large outflows from MMFs during market stress.

The benefits of tokenization in repos and derivative collateral management include operational efficiency, capital efficiency, and risk reduction. Tokenization automates daily lifecycle management, reduces errors and settlement failures, and simplifies reporting. The 24/7 instant settlement and on-chain data improve intraday liquidity for short-term borrowing and enhance collateral usage. Additionally, tokenization allows for quicker transfer of collateral, potentially freeing up significant amounts of capital currently tied up in traditional settlement processes. While challenges remain, including regulatory considerations and the need for broader market adoption, the trend towards tokenization in repos and derivative collateral management is gaining momentum among major financial institutions

Stablecoins have emerged as a popular financial tool in emerging markets, particularly in countries grappling with economic instability and limited access to traditional banking services. In Latin American nations like Argentina, Brazil, and Venezuela, stablecoins are increasingly used as a hedge against local currency depreciation. For instance, when the Argentine peso’s value plummeted in December 2023, monthly stablecoin trading on the Bitso exchange surpassed $10 million the following month. Similarly, African and Southeast Asian countries are embracing stablecoins for low-cost remittances, secure savings, and access to decentralized finance (DeFi) services.

The adoption of stablecoins for cross-border payments and remittances has seen significant growth. In Central & Southern Asia and Oceania, stablecoins are widely used for international trade and money transfers, bypassing traditional banking challenges. Companies like Riseworks report that 25% of businesses worldwide now accept stablecoins as payment, particularly for contractor services in emerging markets. This trend is driven by the advantages stablecoins offer in terms of stability, low transaction costs, and accessibility.

However, the widespread adoption of stablecoins faces challenges, primarily due to regulatory uncertainty. The lack of a coordinated global regulatory regime remains a major hurdle. Nevertheless, some jurisdictions are making progress, such as the European Union’s Markets in Crypto-Assets (MiCA) regulation and Singapore’s regulatory frameworks, which are bolstering confidence in stablecoins. As more countries establish clear regulatory guidelines and businesses recognize the benefits of stablecoins, their use in real-world transactions is expected to continue growing, especially in emerging markets and for cross-border payments.